ICLE-PPI Paper Underscores Value of Transatlantic Data Flows

PORTLAND, Ore. (Oct. 7, 2021) — A new issue brief published jointly by the International Center for Law & Economics (ICLE) and the Progressive Policy Institute looks at looming threats to transatlantic data flows between the United States and European Union that power an estimated $333 billion in annual trade of digitally enabled services.

The threat comes broadly from the rise of data-localization requirements national rules governing how data is created, stored, and transmitted. Data-localization policies restrict the flow of data across borders and often are justified on privacy or national-security grounds.

The threat of growing data localization has been thrown into stark relief by the Court of Justice of the European Union’s  July 2020 decision in the Schrems II decision, which invalidated the EU–US Privacy Shield that had previously governed data flows between the two jurisdictions. While U.S. and EU negotiators are seeking a replacement framework, the European Data Protection Supervisor has vowed to monitor EU jurisdictions’ compliance with the ruling.

By one estimate, even modest changes increasing the EU’s data-localization requirements would result in a €116 billion reduction in exports. And there are reasons to believe this is an underestimate, given the difficulty in quantifying the value of digital services. One implication of these measurement difficultiesauthors Kristian Stout, Michael Mandel and Miko?aj Barczentewicz find, is that the impact of data-flow disruptions is likely to be far greater than the large effects discovered through traditional measurement suggest.

“Global data flows have facilitated the creation of larger, more efficient worldwide networks that optimize time use by firms and individuals, and the development of resilient networks that can withstand shocks to the system like the COVID-19 pandemic,” the authors write.

The paper concludes with recommendations to the U.S. and EU negotiating parties to consider longer-term trade and policy changes that take seriously the role of data flows in the world economy.

The issue brief, “The Great Transatlantic Data Disruption: The damage of data localization after Schrems II,” can be downloaded here. Media interested in interviewing ICLE Director of Innovation Policy Kristian Stout to discuss the paper’s findings may reach him at [email protected] or (732) 690-0375.